"Diamonds in the Rough" outperformed the market again this week, but finished on average, mostly unchanged while the SPY was down -0.26%. This week we concentrated in this week's "Sector to Watch". I think we can continue to fish from this area, but given current market weakness, I'd be careful about expanding your portfolio.
The "Industry Group to Watch" comes from the Healthcare Sector (Sector to Watch) and does offer some opportunity. Biotechnology is showing some expansion in participation and should have some interesting longs associated with it next week. The biggest issue is that the group is very large so while it looks good, there are plenty of ways to lose there. I would definitely make sure the stocks you pick are performing well against their industry group or have elevated StockCharts Technical Ranks (SCTRs).
This week's "Dud" was technically Natural Gas ETF (UNG) which is down -6.02% since being picked Wednesday. I'm leaving this one with a Neutral Sparkle Factor. You will need to make the decision to hold or sell. I currently have a long-term hold on UNG. The "Dud" I'm covering is Dynavax Technologies (DVAX). I have listed it with a Sell for the Sparkle Factor.
This week's "Darling" is the NVDA 1.25x Bear ETF (NVDS) which was up +4.55% just today. I like it as a hedge, but as I mentioned in today's Diamond Mine trading room, I prefer last week's TECS (which I own) as a hedge since it is an inverse of the entire Technology Sector. We also looked at SOXS which is an inverse for Semiconductors. That's my second choice.
Be sure and set stops on your positions. I would also monitor those stops as we move forward to make sure you don't need to update them. A trailing stop will follow price upward and that might also be a way to protect yourself from a difficult market correction that is likely ahead.
See you next week!
Good Luck & Good Trading,
Erin
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Our latest DecisionPoint Trading Room recording (8/7):
A few items about the spreadsheet: I've put on the spreadsheet whether the RSI is positive (green) or negative (red). The PMO column tells you if it is rising (green) or falling (red). Finally I've added my own "Sparkle Factor" that gives you my assessment going forward, bullish (green), bearish (red) or neutral (gray). The Sparkle Factor is basically my thoughts on whether I expect it to rise or fall. A neutral means it could really go either way so it could be added to a watch list. If you're in a stock I consider "neutral" going forward, the ball is in your court.
Darling:
AXS 1.25X NVDA Bear Daily ETF (NVDS)
EARNINGS: N/A
NVDS provides inverse (-1.25x) exposure, less fees and expenses, to the daily price movement for shares of Nvidia stock.
Predefined Scans Triggered: Filled black Candles, P&F Double Bottom Breakout and P&F Long Tail Down.
Below are the commentary and chart from 8/10:
"NVDS is unchanged in after hours trading. I'm bearish on tech and particularly bearish on the mega-caps. NVDIA (NVDA) was run way up on AI speculation and it became way too overbought. I am looking for NVDA to pull back further and this is one way to play that without using put options or shorting NVDA directly. It offers leveraged exposure as well. I see a cup formation with a rising trend going on now. The indicators are quite favorable with the RSI in positive territory and the PMO rising out of oversold territory. Stochastics are now above 80. This is a hedge or short-term trade. I've set the stop a little deeply because this is leveraged 1.25x. It is set at 7.8% or $7.70."
Here is today's chart:
As noted in the opening I think this a perfectly good hedge based on the bearish NVDA chart and the bullish NVDS chart below. It isn't overbought yet so I do believe there is more upside ahead for this hedge. On face value NVDS looks very good based on the technicals. The RSI is still rising and the PMO is accelerating higher. Stochastics remain above 80. As a hedge, remember to keep tabs on it during the day and a stop isn't a bad idea just in case the market shifts on us.
Don't forget, on Thursdays I look at reader-requested symbols, so shoot me an email at erin@decisionpoint.com. I read every email I receive and try to answer them all!
Dud:
Dynavax Technologies Corp. (DVAX)
EARNINGS: 11/02/2023 (AMC)
Dynavax Technologies Corp. operates as a biopharmaceutical company, which engages in the discovery, development, and commercialization of novel vaccines and immuno-oncology therapeutics. Its product includes HEPLISAV-B, which prevents infection caused by all known subtypes of hepatitis B virus in adults 18 years of age and older. The company was founded by Lawrence M. Lichtenstein, Dennis A. Carson, and Eyal Raz on August 29, 1996 and is headquartered in Emeryville, CA.
Predefined Scans Triggered: P&F Bear Trap, Moved Above Upper Price Channel and P&F Double Top Breakout.
Below are the commentary and chart from 8/8:
"DVAX is down -0.60% in after hours trading. DVAX broke out yesterday and saw follow-through today. It's in a solid rising trend. I would like this one on a pullback to new support even better as it seems due to consolidate. The RSI is positive and not yet overbought. The PMO is nearing a Crossover BUY Signal. Stochastics are rising strongly and are above 80. Relative strength is definitely picking up for Biotechs and this one has definitely shown leadership within the group. The stop is set below the 20-day EMA, a little over halfway down the prior trading range at 7.2% or $13.81."
Here is today's chart:
I nearly gave this one a Neutral (Hold) Sparkle Factor but the PMO top beneath the signal line prevented it. While today saw a bullish hollow red candlestick and support is near at the 20-day EMA, I wouldn't expect this level to hold. I see the 50-day EMA as the support level you would consider reentering this position. I don't see it as an 'add' right now based on the PMO.
THIS WEEK's Sector Performance:
DecisionPoint Sector Scoreboard (Mechanical Trend Model Signals):
Click Here to view Carl's annotated "Under the Hood" ChartList!
Sector to Watch: Healthcare (XLV)
Energy (XLE) was last week's Sector to Watch and it is still looking very bullish. I think your positions in that sector should be safe moving into next week. What I wanted to do was find new momentum. This is the only other sector with a rising PMO. The RSI is positive and the PMO is on a rather new Crossover BUY Signal. The Silver Cross Index is decelerating its decline. It will likely decline further given we have fewer %Stocks > 20/50EMAs versus the Silver Cross Index. Still, I do note that expansion is occurring in %Stocks > 20EMA. Price did pull back from the top of the bearish rising wedge, but did finish strongly today. What I also like is that the prior two price bottoms came above the bottom of this wedge. That is bullish activity within this bearish pattern. However, this bullishness is tenuous until we see the Silver Cross Index turn back up.
Industry Group to Watch: Biotechnology (IBB)
IBB is definitely seeing new momentum and there is some expansion in %Stocks > 20EMA. Stochastics are rising and the RSI just hit positive territory. While I am bullish on this industry group, I will say that this chart needs more work. The Silver Cross Index and Golden Cross Index are declining. We could see this reverse if we get just a bit more participation. Currently %Stocks > 20/50/200EMAs are below the readings for the SCI and GCI so they aren't likely to turn back up just yet. It's close though and next week could improve this picture.
Go to our Under the Hood ChartList on DecisionPoint.com to get an in-depth view of all the sectors. On StockCharts.com you can find the Industry Summary.
Good Luck & Good Trading!
- Erin
erin@decisionpoint.com
Full Disclosure: I'm 15% long, 4% short.
Watch the latest episode of the DecisionPoint Trading Room with Carl & Erin Swenlin on Mondays 3:00p EST!
Technical Analysis is a windsock, not a crystal ball. --Carl Swenlin
NOTE: The stocks reported herein are from mechanical trading model scans that are based upon moving average relationships, momentum and volume. DecisionPoint analysis is then applied to get selections from the scans. The selections given should prompt readers to do a chart review using their own analysis process. This letter is not a call for a specific action to buy, sell or short any of the stocks provided. There are NO sure things or guaranteed returns on the selection of "diamonds in the rough."
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Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
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